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50 predictions: construction & engineering

The next decade will test the capacity of the insurance market – as investors and insurers – to support a series of major infrastructure projects. Infrastructure investment is seen by the government as one of the keys to economic growth and regional policy – HS2, airport expansion, new town developments and flood defences are all on the Chancellor’s shopping list, with large scale energy production projects likely to follow. The government is expecting the insurance market to provide upwards of £25 billion to support these projects as well as provide a wide range of cover during the construction phases. It will also look to the insurance industry to make a significant contribution on the health and safety front as it did during the fatality-free 2012 Olympics construction period.

Integrated Project Insurance will require a quantum shift

A quantum industry shift will be required to progress the government’s Integrated Project Insurance initiative. It may seem utopian to imagine a construction industry with one collective co-operative partnering goal of timely project completion, on-budget and without a cross word. No blame, just solutions when things go wrong. The usual insurance lines would be housed in a single policy addressing any project loss, in a reward structure only promoting positive contributions. Certainly, it seems a far cry from the current reality where project parties readily reach for their statutory adjudication rights. This initiative will need to be driven by public procurement and the desire of the construction insurance industry to explore the reinvention of its value.

We will see a separation in the leading reinsurer approaches, between those who will accept claims co-operation terms to build project premium and those holding on to claims control to protect slim margins. Mixed messages currently resonate in the market. Insurgent surplus capital coupled with cedant retention has apparently delivered a proliferation of claims co-operation terms – conferring sympathetically led local resolution of losses. However, senior broking practitioners have recently expressed concerns that reinsurers are now taking a tougher line and leading more coverage disputes based on claims control.

Push the recovery door as it is still open

Strong technical claims handling will be key to maintaining margins, as the soft insurance market continues to inhibit premium growth. Underwriters often shy away from coverage defences. In that context, recovery is all the more important. The judicial tone in 2015 in Gard Marine and Energy Ltd v China National Chartering Co Ltd may seem against project recoveries. Not so. The law remains that a joint names policy must be construed in the context of the underlying contractual matrix. Significant numbers of main contractors still choose to place Contractors All Risks and indemnity obligations on the shoulders of their subcontractors. There is no substitute for looking at the contract terms.

Compare jurisdictions: Insurance & Reinsurance

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